- HSFO prices may decline while LSFO prices might increase after the 2020 deadline.
- This will create an imbalance which will determine the viability of installing scrubbers.
- Newbuild ships will be more inclined for scrubbers than older ships because of their more chartering capabilities.
- It costs $2.5-$3.0 million to install a scrubber in a new build VLCC while the retrofitting charge on an existing one is $4-$4.5 million.
Despite slow and steady scrubbers installation, there looms an uncertainty about the bunker prices once we reach the 2020 deadline. Shipowners are quite apprehensive of this as they normally pass on the additional cost of bunkers to charterers the actual price of fuel is often not their main concern, says a report published in Drewry.
A Small Price to Pay?
The expectation is that the price of High Sulphur Fuel Oil (HSFO) will decline after the implementation of IMO regulations, as most existing demand will shift to Low Sulphur Fuel Oil (LSFO). At the same time, the tight availability of LSFO will ensure high premiums for LSFO and MGO. The dilemma for tanker owners is therefore about the price differential between LSFO and HSFO, as it will decide the attractiveness of fitting a scrubber to comply with forthcoming IMO regulations which limits the amount of sulphur in bunkers.
Old is Gold? Is it?
In addition to the premium of LSFO over HSO, the age of the ship will also be crucial factor, as younger vessels will have more time to recover the investment in a scrubber. Newbuild ships will also have an advantage, as they will not only have a longer trading life to recover the cost of the scrubber, but also the cost of fitting a scrubber to a newbuild will be less than an existing ship, as customisation is required to retrofit a scrubber in existing deck space.
For VLCCs, the cost of fitting an open loop scrubber in a newbuild ship is around $2.5-$3.0 million (say $2.7 million), whereas the cost of retrofitting a scrubber on an existing VLCC will be $4-$4.5 million (say $4.3 million).
VLCC Scrubber payback period
Source: Drewry Maritime Research
Moreover, the premium for LSFO is expected to gradually decline from 2020 as supply increases. According to Drewry’s projections the premium will decline from around $300 per tonne in 2020 to $87 per tonne by 2023, and accordingly, the savings on bunker cost for a modern eco-VLCC will decrease from $5.7 million to $1.6 million. This suggests that owners opting for scrubber-fitted vessels in 2020 would recover their cost in the first year alone. However, for those who choose to retrofit a scrubber (or take the delivery of a scrubber-fitted vessel) later, the payback period will be longer.
Scrubber-fitted VLCC – savings on bunker cost
Source: Drewry Maritime Research
Did you subscribe for our daily newsletter?
It’s Free! Click here to Subscribe!
Source: Drewry
